Efficiency and quality in the English and Welsh water and wastewater industry

Peirce, John E. 2024. Efficiency and quality in the English and Welsh water and wastewater industry. PhD Thesis, Cardiff University. Item availability restricted.

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Abstract

In 1989, the English and Welsh Water and Sewerage Industry privatised, on account of Thatcherite liberalisation efforts of public utilities, motivated in part by the nationwide failure to meet multiple European Economic Community directives for Bathing and River Water Quality. Since then, the industry has been regulated, with periodic updates to the regulations set by Ofwat, the regulating body. The research literature has concerned itself with the incorporation of quality in the industry since Saal & Parker (2000)’s use of quality indices to adjust the final water and sewerage service outputs of companies. However, as Saal himself reports in Saal et. al. (2017), these indices have ‘stagnated’ – they are not longer useful measures of quality, on account of the whole industry reaching near full compliance in these quality standards. These measures also face issues around the selection of and assumptions on their data, such as assumed fixed quality before the indices’ reference year, or little variation in the measures selected for their indices, as well an assumed exogeneity of quality in the industry given the measures’ applications as scaling factors to production outputs. This thesis aims to develop a new, Composite Indicator of overall industry quality, utilising some of the newer regulatory targets, the Common Performance Commitments, introduced in 2014. This use of newer regulatory targets allows for the measurement of industry quality over a long time period, using targets common to all companies in the industry, with consistent data under current regulatory scrutiny, rather than traversing the difficulties of, say, the individualised K-factors used for price cap regulation. Using DEA modelling, the thesis first intends to see if the addition of the new indicator as an additional production output significantly changes the Technical Efficiency scores of companies, compared to older DEA models using the allegedly superfluous measures. The thesis then aims to perform the same exercise in DEA models with Quasi-Fixed i Capital, as to determine if the addition of a quality investment output addresses Capex Bias in the industry, as reflected through Allocative Efficiency. Finally, the thesis looks at and discusses various extensions and future directions for the composite indicator, focusing on its dynamic properties, and interactions with measures of extreme weather. Focus on how Welsh Water, the only non-profit company, compares to its for-profit counterparts is also given. The thesis finds that the new composite indicator of quality is significantly more volatile and less complied with on average, finding a 42.5% difference in quality compliance on average between the old and new measures. When used in DEA models, the thesis finds a significant change in companies’ technical efficiency scores; this is not true, however for allocative efficiency in the dynamic DEA models. Limited evidence about the composite indicator’s correlations with extreme weather is found, and the dynamic properties of the indicator suggest that the overall quality improvement over time is limited, if not negligible. Finally, though non-profit behaviour seems to yield lower allocative efficiency in dynamic models, there is evidence of greater technical efficiency over time with the quality indicator as an output, compared to for-profit companies on average.

Item Type:	Thesis (PhD)
Date Type:	Completion
Status:	Unpublished
Schools:	Business (Including Economics)
Uncontrolled Keywords:	Welsh Water, Sewerage Industry, public utilities, Ofwat, wastewater,
Date of Acceptance:	8 January 2025
Last Modified:	09 Jan 2025 11:48
URI:	https://orca.cardiff.ac.uk/id/eprint/175101

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